Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The company is planning to use retained earnings for 50% of the equity financing. What are the weighted average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million )?
Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The company is planning to use retained earnings for 50% of the equity financing. What are the weighted average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million )?
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 6P
Question
![Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity
ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The
company is planning to use retained earnings for 50% of the equity financing. What are the weighted
average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million
)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6ef2f176-d624-4e75-9e27-eee12e8f5783%2Fec01309c-6aaf-4bb5-87c4-884e766dbfbb%2Ffvixb2_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Your company is evaluating a new factory that will cost $14 million to build. Your target debt-equity
ratio is 1. The flotation cost for new equity is 7% and the flotation cost for new debt is 4%. The
company is planning to use retained earnings for 50% of the equity financing. What are the weighted
average flotation costs as a fraction of the amount invested? What are the flotation costs (in $ million
)?
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